Suit: Wachovia knew of thefts

Documents from a case over fraudulent telemarketing show the bank was long aware of allegations, but was profiting.

By New York Times
Published February 7, 2008

Last spring, Wachovia bank was accused in a lawsuit of allowing fraudulent telemarketers to use the bank's accounts to steal millions of dollars from unsuspecting victims. When asked about the suit, bank executives said they had been unaware of the thefts.

But documents from that lawsuit show that Wachovia had long known about allegations of fraud and that the bank, in fact, solicited business from companies it knew had been accused of telemarketing crimes.

Internal Wachovia e-mail, for example, shows that high-ranking employees at the nation's fourth-largest bank warned colleagues about telemarketing frauds routed through its accounts.

Documents also show that Wachovia, based in Charlotte, N.C., was alerted by other banks and federal agencies about ongoing deceptions, but that it continued to provide banking services to companies that helped steal as much as $400-million.

"YIKES!!!!" wrote one Wachovia executive in 2005, warning colleagues that an account used by telemarketers had drawn 4,500 complaints in just two months. "DOUBLE YIKES!!!!" she added. "There is more, but nothing more that I want to put into a note."

However, Wachovia continued processing fraudulent transactions for that account and others, partly because the bank charged fraud artists a large fee every time a victim spotted a bogus transaction and demanded the money back. "We are making a ton of money from them," wrote Wachovia executive Linda Pera in 2005 about one company.

There were other internal warnings, as well.

In 2005, a Wachovia fraud investigator wrote to colleagues that 79 percent of the checks submitted by one Wachovia client, Suntasia, a Largo telemarketing company shut down by a court order, had been returned in August because of unauthorized withdrawals and other problems. Regulators say return rates in excess of 2.5 percent are evidence of potential fraud.

But Wachovia continued doing business with Suntasia until last year, when the court shuttered the company, the lawsuit says.

Lawyers pursuing the suit against Wachovia, which was filed in a Pennsylvania federal court, have asked a judge to declare the case a class action.

The suit alleges that Wachovia accepted fraudulent, unsigned checks that withdrew funds from the accounts of victims, often elderly. Wachovia forwarded those checks to other banks that were unaware of the frauds, which in turn sent money to the swindlers.

A judge is expected to rule on the class action request by this summer.

Wachovia's senior vice president for risk management, Alan Chudoba, said the bank introduced reforms aimed at telemarketing frauds last summer. In a statement, Wachovia said: "Earning the trust of our customers is at the heart of what we do every day, and we regret this situation occurred."